The demand for dollars has surged at the parallel market, popularly known as the black market, following banks’ suspension of the usage of naira-denominated debit cards for international transactions, BusinessDay findings have shown.
The naira has weakened to 600 per dollar at the black market as a result of increased demand, a trader told BusinessDay. “Any amount of dollars you need, you can get in the (black) market,” he said.
In March this year, several Nigerian banks announced the reduction of the monthly spending limit to $20 from $100, while some temporarily suspended the usage of the naira-denominated debt cards for international transactions.
“Even the $20 is not available in the banks. The banks direct customers to open domiciliary accounts. Customers who open a domiciliary account buy dollars from the black market to fund it,” Jumoke Akiyode, a bank customer, said.
In April 2015, the spending limit on naira-denominated cards for international transactions was $50,000 per person per annum or $4,166.7 per month.
“Naira depreciation has an inflationary impact on businesses,” said Johnson Chukwu, managing director/CEO of Cowry Asset Management Limited.
He said it would lead to a high cost of production of goods and services, adding that this would be passed on to the consumers or absorbed by businesses. “If it is absorbed, then there will be low profits or losses,” he said.
Travellers also patronise the black market as they could not access dollars from banks. “When I travelled to London I was not able to access dollars from my bank. I am traveling again in two weeks and I have to go to the black market to buy dollars,” Akiyode said.
A Lagos-based investment analyst, who pleaded anonymity, told BusinessDay that the Central Bank of Nigeria reduced its dollar supply to banks, even though demand has not reduced.
“The continued slide of the currency on the black market will also fuel inflation,” analysts at London-based Capital Economics said in a report on Monday.
The country’s inflation rate surged to 16.82 percent in April, the highest in eight months, from 15.90 percent in the previous month, the National Bureau of Statistics announced on Monday.
At the official foreign exchange market, which is the Investors and Exporters forex window, the naira strengthened by 0.71 percent as the dollar was quoted at N418.50 on Tuesday as against N421.50 on Monday.
Most currency dealers who participated in the auction on Tuesday maintained bids between N410.00 and N444.00 per dollar.
Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, has highlighted some policy options that should be adopted to fix the current forex crisis in the short to medium term.
Read also: High transport fares persist in 2022- NBS data
The policy options, according to him, include adoption of a flexible exchange rate regime, which would improve liquidity in the forex market, reduce uncertainty and enhance investors’ confidence; deepening the autonomous foreign exchange market through the liberalisation of inflows from export proceeds, diaspora remittances, multinational companies, donor agencies, diplomatic missions, etc.
He said market rates should be allowed to prevail in the autonomous window.
He stressed the need to accelerate reforms to boost private investment in domestic petroleum refineries to stop the current massive forex outflows for the importation of refined petroleum products.
Yusuf said the government should fix the structural problem in the economy to enhance regional and global competitiveness of Nigeria products in order to boost exports and strengthen import substitution; and incentivise investment in the gas sector to take advantage of the current crisis in the global energy market.
